New Worlds To Conquer

For Michael Dell to double the size of his company, he'll need to move into new markets held by rivals that promise tough competition

Larry Greenemeier, Contributor

September 5, 2003

5 Min Read

Progressive supports Dell's move into new markets, in particular the IT vendor's storage area network and network-attached storage technology. Storage is the fastest-growing part of Dell's enterprise business. That's thanks largely to the company's ability to ship storage capacity in high volume along with its servers, says Yankee Group senior analyst Jamie Gruener. For Dell's second quarter, ended July 31, the company shipped an average of 486 terabytes of capacity daily, up 91% from the second quarter a year ago. The amount of nonserver storage capacity shipped grew 74% year over year, far outpacing the rest of the storage industry, which grew 49% from the second quarter of 2002, according to IDC. Last year, Dell's storage business did $1 billion in sales.

The next step for Dell is to figure out how to succeed in the broader SAN market. While Dell can "ride the price curve as low as possible" to grow, it has to address the complexity of more-advanced storage systems, Gruener says. HP, IBM, and Network Appliance may have all been hurt by Dell's entrance into the storage market, which made price competition much tougher. But Dell is at a disadvantage against the incumbents when it comes to software, because it offers few software products. "And that's where storage technology is increasingly moving," Gruener says.

Another challenge for Dell will be to keep its relationship with EMC cordial as it grows in the storage market. By working together on products, EMC made it possible for Dell to jump into the storage market quickly. But if Dell cuts prices far enough, that could hurt EMC's margins. "There might be a time when the relationship doesn't work anymore," Gruener says.

Dell's move into more markets makes the company more appealing, says Elliott, Intervet's technology team leader.

"Dell is really getting in touch with what helps them win deals or what's keeping them from winning deals," says Stephen Elliot, IDC's senior analyst of network management. Last month, Dell moved beyond simply being a provider of Ethernet switches and added management software to its networking portfolio. That product, OpenManage Network Manager, centralizes the ability to configure and manage PowerConnect switches and will be bundled with Dell switches at no additional cost.

Dell's strength in the PC, server, and storage markets continues to pave the way for the company's success in new areas. The company reported a profit of $621 million on revenue of $9.8 billion for its second quarter. This was up from a profit of $501 million on revenue of $8.5 billion in the same quarter a year ago. Dell expects third-quarter unit sales volume to grow more than 25%.

Intervet Inc., the U.S. operating division of veterinary-pharmaceuticals company Intervet International, has standardized on Cisco networking equipment, but that hasn't stopped it from buying four Dell PowerConnect switches. Like many of Dell's customers, Intervet first got hooked on the company a few years ago through Dell's low-cost PCs and servers. "Dell's move into more markets does make the company more appealing," says Chad Elliott, Intervet's technology team leader. "It really cuts down on the finger pointing between vendors and provides a single point of contact in the event of a problem."

Intervet has more than 700 Dell PCs and 40 Dell servers, and plans to replace another 100 Compaq PCs and 15 servers with Dell products by the end of the year. Elliott doesn't base buying decisions on whether a vendor is No. 1 in its market as long as the vendor proves it will be around for the long haul and is making the right decisions to help Intervet remain competitive.

Dell is gaining ground in the PDA market. It has been working with Good Technology Inc. since April to deliver wireless handhelds that synchronize with not only personal E-mail, contact, and calendar information but also customer-relationship-management, enterprise-resource-planning, and sales-force-automation data stored on company servers. Dell, which has been in the handheld/PDA market since November, owns 20% of the PocketPC market, well behind rival HP, says Tim Mattox, Dell's VP of marketing for the company's worldwide client product group.

In late March, Dell, making good on last fall's promise to enter the printer market, began taking orders for a line of printers and cartridges made in partnership with Lexmark. In June, Dell introduced its high-end Workgroup Laser Printer M5200n for $999. During the second half of 2002, HP held 56% of the U.S. printer market, followed by Lexmark at 18%. Intervet's Elliott says Dell's situation in the printer market is similar to its place in the networking market. "They still don't have the heavy-duty workhorse to take on the market leader," he says.

That may be true. But Michael Dell can afford to take the slow and steady approach as he develops the right product mix to turn his company into something more than a PC and server vendor. "Probably the best indicator of whether something is working or not is, do people actually buy it?" Dell says. "People are buying our stuff."

Illustration by Darren Gygi

Find out more about what's happening at Dell. Read the follow-up story, "Imagining What's Possible"

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